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Accounting I summary
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This is a summary of all the information you need for the Accounting I course. The two parts of financial and management accounting are both included.
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Lecture 1Basic financial statements
Balance sheet = possessions (assets), owners (equity = eigen vermogen), obligations
(liabilities)
o Equity = assets - liabilities
o Assets = equity + liabilities
Cash flow statement = either positive (cash inflow) or negative (cash outflow) (liquiditeits
begroting)
Income statement = a summary of detailed underlying information (winst- en
verliesrekening)
o Positive revenue, negative costs, profit/loss
Cash flow affects cash on the balance sheet, income statement affects equity on the balance
sheet
Cash is essential, but in the short run, cash is a noisy measure of performance
By recording changes in equity, accounting tries to create a better measure of performance
than the change in cash
Basic relationships:
o ∆ cash + ∆ other assets = ∆ liabilities + ∆ equity
o Cash flow + ∆ other assets = ∆ liabilities + profit
o Profit = cash flow + (∆ other assets - ∆ liabilities)
o Profit = cash flow + ‘’accruals’’
o Accruals = ∆ other assets - ∆ liabilities
o Or profit = cash flow + interpretation
Accruals: some technical terms
To recognize/recognition = to record an element (asset, income, expense) in the balance
sheet or income statement (for assets also to capitalize)
To measure/measurement = to give a numerical value to an element in the balance sheet or
income statement. The amount for which an item is shown in the balance sheet: ‘’book
value’’, ‘’carrying amount’’
The basic relationship including transactions with owners
Profit = ∆ equity + payments to owners (dividends)
o ∆ cash + ∆ other assets = ∆ liabilities + ∆ equity
o Cash flow + ∆ other assets = ∆ liabilities + profit + contributions by owners –
distribution to owners
o Profit = cash flow + (∆ other assets - ∆ liabilities) + contributions by owners –
distribution to owners
o Profit = cash flow + ‘’accruals’’ – net contribution by owners
o Accruals = ∆ other assets - ∆ liabilities
o Or profit = cash flow + interpretation
Bookkeeping basics
Opening balance sheet debit & credit
Each item In your balance has a separate double page in the ledger
Each double page is called an account
, Record changes as they happen in a second book: journal
From time to time, journal entries are posted, one by one, to the ledger
The ledger is closed periodically by transferring the account balances to the balance sheet
Why is there a debit for every credit? an increase in one asset means a decrease in
another asset and an decrease in an asset means in a decrease in another liability
Profit and loss account to equity (T-format, but vertically it is ‘’income statement’’)
Lecture 2
Accounting principles
Realization principle
o Recognize revenue only when realized (sold and delivered/performance obligation
satisfied/payment is probable)
Matching principle
o Recognize expenses in the income statement in the same period as the revenue to
which they relate (expenses that are necessary to make the sales)
(historical) cost principle
o Expenses in the income statement are determined on the basis of amounts paid in
the past (assets are measured on the basis of costs)
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